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25th February 2020
Competition & State Aid Justice & Litigation

Op-Ed: “UK Supreme Court and the Micula Arbitration and State aid Saga: Judgment [2020] UKSC 5” by Gillian Cahill

Introduction

The Micula Brothers live to fight another day in the latest installment of their ongoing saga to obtain enforcement of an ICSID (International Centre for Settlement of Investment Disputes, or ‘Arbitral Tribunal’) arbitration award. This time, the scene of the drama was the Supreme Court of England & Wales, and the action – the lifting of a stay against the enforcement of the Miculas’ now infamous award granted against Romania. The stay had been granted pending proceedings at the General Court of the Court of Justice of the European Union (GCEU), but had been appealed by the Claimants to the Court of Appeal in the UK, and finally, the Supreme Court.

 

Background to the Supreme Court’s decision

The background to the Micula saga is lengthy and has involved actions in four EU countries and the US. The abbreviated version of these events is that in 2013, an ICSID arbitral award, arising out of a dispute under an intra-EU bilateral investment treaty (BIT) that Romania and Sweden had signed in 2002, granted the Miculas approximately €70 million.

The Arbitral Tribunal made its findings on the grounds, inter alia, that the Miculas had a legitimate expectation that a Romanian aid regime (Emergency Government Ordinance No 24/1998 ‘EGO 24’) applicable to their investments in Romania would have continued. Romania had repealed all but one of the incentives provided for in EGO 24 prior to its accession to the EU on grounds that, inter alia, EU law required EGO 24 be repealed, as the regime amounted to illegal State aid pursuant to EU law rules. In the ICSID arbitral proceedings both Romania and the Commission (as amicus curiae) had raised the State aid issue arguing that if the compensation to the Miculas was granted and paid, payment of any such award would amount to illegal State aid and be in breach of Article 107(1) TFEU. The Arbitral Tribunal declined to address the EU law issues raised by Romania and the Commission. But once the award was rendered the hypothetical EU law issues raised by the Miculas’ case became reality with multiple direct clashes of the EU and international law legal order. The Commission ultimately injuncted Romania so as to prevent any payment being made under the award, and made a final decision that the payment of the award by Romania constituted State aid under Article 107(1) TFEU and was incompatible with the internal market. The Commission prohibited Romania from making any payment of such State aid to the Claimants and demanded that Romania recover any payments already made under the award.

Romania was therefore left between a rock and a hard place: it could not fulfil the Arbitral Tribunal’s decision to pay the Miculas the award without breaching its EU law obligations. But by not paying the award, it was arguably in breach of its obligations under the ICSID Convention.

And in return, the Miculas sought to annul the Commission’s final decision and on 18 June 2019, the GCEU annulled the Commission Decision on the ground that the Commission had purported to apply its powers retroactively to events pre-dating Romania’s accession to the EU. The Commission has applied to appeal this decision.

Meanwhile, the Miculas sought to have the award enforced in various other countries  including in the US, in the UK and in Belgium.

The Supreme Court ruling of 20 February 2020 lifting the stay on enforcement of the Miculas’ award is however a game changer that will have a significant effect on how this saga ends.

 

Findings of the Supreme Court

In making its finding, the Supreme Court held as follows. First, the Miculas had argued that the effect of the GCEU’s judgment is that the EU law duty of sincere cooperation no longer requires the English courts to stay enforcement of the award. Romania, and the Commission, intervened submitting that the GCEU judgment annuls only the Commission Decision and not the injunction or initiating decision. In this regard, the Supreme Court held that without a final Commission decision closing the formal investigation procedure, the effects of the initiating decision subsist, thereby imposing a duty of sincere cooperation on the English courts. This argument was therefore not strong enough to win over the Supreme Court.

Second, the Miculas had argued that there was no power to order a stay under the ICSID Convention and the 1966 Act, and that the stay was incompatible with the ICSID Convention. Here, the Supreme Court emphasised that the scheme of the ICSID Convention does not permit a domestic court before which recognition is sought to re-examine an award on its merits, once its authenticity has been established. However, and of some significance regarding the accepted notion in ICSID arbitration that there is no permissible challenge to an ICSID award outside of the ICSID annulment procedure, the Supreme Court was of the view that in light of the wording of Article 54(1) and the preparatory materials, it was arguable that there is scope for certain exceptional defences against enforcement if national law recognises them in respect of final domestic judgments. Accordingly, and although the proper interpretation of Article 54(1) of the ICSID Convention is something which could only be authoritatively resolved by the International Court of Justice, the Supreme Court upheld the Court of Appeal’s finding that English courts do have the power to stay execution of an ICSID award in the limited circumstances they describe.

However, and crucially for the Miculas, the Supreme Court found that the granting of a stay pending the outcome of the GCEU proceedings exceeded the proper limits of the English Court’s power to stay an ICSID award and is not consistent with the ICSID Convention.

This finding is of some significance. Whilst it did not prevent the Supreme Court from lifting the stay, the Supreme Court acknowledged that an ICSID award could arguably be subject to ‘certain exceptional defences against enforcement’ where English law recognised such defences regarding final domestic judgments.

Thus, implicitly, the heretofore accepted idea that there is no challenge to an ICSID award might find itself challenged as a result of this judgment.

Finally, the Supreme Court was of the view that the the Miculas’ fourth and fifth grounds which related to Article 351 TFEU should also succeed. In this regard, it held that Article 351 TFEU is intended to establish that the application of the EU Treaties does not affect the duty of a Member State to respect the rights of non-Member States under a prior international agreement (such as the ICSID Convention) and to perform its obligations (such as the obligation to enforce an ICSID award) thereunder. In the Supreme Court’s view, the specific duties in Articles 54 and 69 of the ICSID Convention are owed to all other Contracting States of the ICSID Convention, including non-Member States. For the Supreme Court, the duty of sincere cooperation did not require courts in England to decline to decide the issue before it pending its resolution by the EU courts. Rather, EU case law makes it clear that questions regarding prior treaties under Article 351 TFEU are not reserved to the EU courts. In this regard, the Supreme Court paid particular attention to the CJEU judgments in Levy (C-158/91, para 13) and EvansMedical (C-324/93).

For the Supreme Court, the Article 351 TFEU issue before it (that is, the extent of the United Kingdom’s obligations under the ICSID Convention) was not the same Article 351 issue that had been before the GCEU (does Article 351 TFEU afford primacy to Romania’s pre-existing international obligations under the BIT and the ICSID Convention over its EU law obligations?). The Supreme Court was therefore of the view that given that the Article 351 TFEU issue before the EU Courts is not part of the Commission’s appeal to the CJEU, the possibility that the EU courts might consider the issue at some future stage was contingent and remote.

In such circumstances, the Supreme Court held that the duty of sincere cooperation does not require the imposition of a stay of enforcement of the Award.

 

Conclusion – watch this space

Having made these findings the Supreme Court lifted the stay on the order. Once the the next step for the award to the Miculas has been taken and has been translated into a judgment pursuant to the English Arbitration Act 1996, a full range of options will be available to the Miculas to try and extract payment from the award (including third party debt orders, charging orders and freezing injunctions).

In the meantime, the Commission’s appeal against the GCEU’s order will make its way through the CJEU’s appeal system leaving open the possibility for a further clash of the international and EU legal orders. What legal recourse may there be if the CJEU sides with the Commission and overturns the GCEU’s decision, but in the meantime the award has been enforced in England and payment made? The award will be satisfied, but could the Commission still consider Romania in breach of its EU law state aid obligations?

Given the multitude of twists and turns in the Micula saga, one cannot help but think that the Supreme Court may not yet have had the last word.

 

Gillian Cahill is a Barrister specialised in EU law and international arbitration. She has particular expertise in the cross-over issues arising out of these two areas of law.

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